ICAI Guidance Note — Non-Corporate Entity Financial Statements

The four-level thresholds with a worked example, the prescribed Balance Sheet and P&L formats, the disclosures, and the revised 2025/26 dates.

What the Guidance Note actually is

The ICAI Guidance Note on Financial Statements of Non-Corporate Entities sets out, in a single consolidated document, the formats and disclosure expectations for entities that are not companies. Until it was issued, these entities had no Schedule III equivalent to anchor to, and every firm built its own balance-sheet layout from habit and memory. Two audit teams could look at the same trial balance and produce statements that shared almost no structural DNA — and neither was wrong, because there was nothing to be wrong against.

That single fact changes the stakes. A layout that "looked right" for fifteen years is no longer a safe default; it now has to reconcile, line by line, to a prescribed structure. The good news is that the structure is logical and, once mapped, repeatable across every client on your roster.

When it actually applies — the dates were revised

This is the detail most articles on the subject still get wrong, so it is worth being precise about.

The Guidance Note was originally announced as applying to accounting periods beginning on or after 1 April 2024. That date was subsequently revised. At its 451st meeting, held on 30–31 March 2026, the ICAI Council decided that the Guidance Note would instead apply in two phases:

The same phased timetable applies to the companion Guidance Note on Financial Statements of LLPs.

What this means in practice: if your client's turnover is above ₹5 crore, FY 2025-26 was already the first mandatory year. If it is below ₹5 crore, FY 2026-27 is. A firm that read one of the many articles still citing 1 April 2024 and concluded it was already late for every client has been working from a superseded date — and one that assumed the deferral applied to everyone has under-prepared its larger clients. Check the turnover before you decide which year you are in.

Which entities it binds

The Guidance Note covers non-corporate entities engaged in commercial, industrial or business activities. In practice, that is most of a typical Indian firm's client list:

• Sole proprietorships — including professionals maintaining books on a business footing.
• Partnership firms — registered and unregistered alike.
• Hindu Undivided Families (HUFs) carrying on a business.
• Associations of Persons and Bodies of Individuals (AOP/BOI).
• Trusts, societies and co-operative bodies, and statutory corporations, where they carry on commercial or business activity.

The practical test is the activity, not the label. A charitable trust running no business activity sits outside the intended scope; the same trust operating a commercial hospital wing does not. Where an entity is governed by its own statutory format — a co-operative society under state law, for instance — that specific format continues to prevail, and the Guidance Note fills the gaps it leaves rather than overriding it.

LLPs are the important exception. An LLP is a body corporate under the LLP Act but is not a company under the Companies Act, so Schedule III does not reach it either. Rather than folding LLPs into this Guidance Note, ICAI issued a separate Guidance Note on Financial Statements of Limited Liability Partnerships. The two documents are closely aligned in structure and follow the same phased applicability, but they are distinct — an LLP engagement should be worked against the LLP Guidance Note, not this one. Getting this wrong is easy, because almost every summary article treats "non-corporate" as though it swallowed LLPs.

What changed, explicitly

If you have prepared non-corporate statements before, these are the concrete differences:

• From free-form to prescribed. Previously there was no mandated format. Now there is a vertical Balance Sheet and Statement of Profit and Loss with defined heads and a defined order.
• Current versus non-current is explicit. The old "Loans (Liability)" lump must now be split, with the portion falling due within twelve months moved into current liabilities as a current maturity. Many hand-built templates never did this.
• "Owners' Funds" replaces "Capital and Reserves". The terminology is deliberate — it accommodates proprietors, partners and members under one head.
• Every face figure ties to a numbered note. A figure on the Balance Sheet with no note behind it is now a visible gap rather than a stylistic choice.
• Accounting policies must be stated, not assumed. Depreciation method, inventory valuation, revenue recognition and provisioning all get written down.
• Comparatives in identical format. The prior year has to be re-presented in the new structure so the two years are genuinely comparable — which, in the first year of adoption, means restating last year's presentation.

The four-level classification

The Guidance Note groups non-corporate entities into four levels based on size. The level determines how much of the Accounting Standards disclosure burden the entity carries. Level I entities comply in full; Levels II, III and IV are treated as Micro, Small and Medium-sized Entities (MSMEs) and receive graded exemptions and relaxations — on segment reporting, related-party detail, earnings-per-share and the discounting of certain provisions, among others.

Level I additionally captures, regardless of size: entities whose securities are listed or in the process of being listed; banks, financial institutions and insurance entities; and the holding or subsidiary entities of any Level I entity.

Three details in that table do the damage in practice:

• The criteria are alternatives, not cumulative. Breaching either the turnover or the borrowing threshold pulls the entity up. A firm with ₹9 crore of turnover and ₹3 crore of borrowings is Level III on borrowings alone.
• Turnover excludes other income. Interest, rent and gains on asset sale do not count toward the turnover test.
• Borrowings are tested "at any time during" the year, not at the closing date. A facility drawn in September and repaid in February still counts, even though the Balance Sheet on 31 March shows nothing. This is the single most commonly missed condition.

A worked example: determining the level

Take Suri & Associates, a partnership firm of trading distributors, for FY 2025-26. You are testing against the immediately preceding year, FY 2024-25:

Turnover test: ₹46.20 crore is below ₹50 crore, so on turnover alone the firm is Level III.

Borrowings test: the closing figure of ₹1.40 crore would suggest Level IV. But the test is the peak during the year. Term loan plus peak cash credit is ₹3.75 crore, which sits in the "more than ₹2 crore, up to ₹10 crore" band — Level III.

Conclusion: Level III. Note what nearly went wrong. Had you tested borrowings at the closing date, you would have concluded Level IV and under-disclosed for the year. Had you counted the ₹1.14 crore of other income in turnover, you would still have landed at ₹47.34 crore and stayed under ₹50 crore — but a firm nearer the boundary would have been pushed a level too high.

Document both the level you concluded and the two figures you concluded it on. When a reviewer asks next year why the disclosures changed, that working paper is the answer.

The prescribed Balance Sheet format

Both statements are vertical. The Balance Sheet is presented in two blocks that must equal each other:

The structure mirrors Schedule III but is not identical to it — "Owners' Funds" in place of "Shareholders' Funds" being the obvious difference. Do not assume a company template can simply be relabelled.

The prescribed Statement of Profit and Loss

The arithmetic discipline here is exactly what trips up hand-built Excel templates. A rounding difference, an unmapped ledger or a stale link can leave the Balance Sheet a few rupees out — and unlike a free-form layout, there is now nowhere for that difference to hide.

Disclosure requirements, itemised

• Capital account schedule per partner or proprietor: opening balance, fresh introductions, share of profit, interest on capital, drawings, closing balance.
• Significant accounting policies: basis of preparation, revenue recognition, inventory valuation method, depreciation method and rates, treatment of borrowing costs, foreign currency translation, employee benefits, provisions and contingencies.
• Property, Plant and Equipment: gross block, additions, disposals, depreciation charge, accumulated depreciation and closing net block, per class of asset.
• Trade receivables and payables ageing, distinguishing amounts outstanding beyond six months.
• Related-party disclosures under AS 18 — relationships, transactions and outstanding balances — subject to the relaxations available at the entity's level.
• Contingent liabilities and commitments: guarantees given, claims not acknowledged as debts, capital commitments outstanding.
• Borrowings: nature of security, repayment terms, rate of interest, and any default in repayment of principal or interest.
• Inventory: valuation basis and classification into raw materials, work-in-progress, finished goods and stock-in-trade.
• Employee benefits under AS 15, with the level-based relaxations applied.
• Prior-period comparatives in the identical format, restated where necessary.
• Events after the Balance Sheet date that materially affect the position.

Pre-filing checklist

Run this before the statements leave your office:

• Level determined for the current year, using preceding-year turnover excluding other income and peak borrowings — and both figures recorded in the working paper file.
• Every Tally ledger mapped to a prescribed head, with no ledger sitting in a suspense or unmapped bucket.
• Loans split between long-term borrowings and current maturities, with the twelve-month cut applied on the actual repayment schedule.
• Sundry creditors decomposed: trade payables separated from statutory dues and from provisions.
• Balance Sheet balances — and balances after rounding, not just before it.
• Every face figure carries a note reference, and every note ties back to a face figure.
• Partner or proprietor capital accounts reconcile: opening + introductions + profit share − drawings = closing.
• Prior-year comparatives re-presented in the new format, with any restatement explained.
• Accounting policies written out, not inherited unchanged from a template that predates the Guidance Note.
• Disclosures appropriate to the level — neither the full Level I set applied to a Level IV proprietor, nor Level IV brevity applied to a Level II firm.
• Depreciation recomputed on the stated method, and the rates in the policy note matching the rates actually used.
• Signing block complete: firm name, membership number, UDIN and date.

Frequently asked questions

Which entities does the ICAI non-corporate guidance note apply to?

It applies to non-corporate entities carrying on commercial, industrial or business activities: sole proprietorships, partnership firms, HUFs, AOP/BOI, trusts, societies, co-operative bodies and statutory corporations. Companies are excluded — they follow Schedule III of the Companies Act. LLPs are also excluded from this particular Guidance Note, because ICAI issued a separate Guidance Note on Financial Statements of Limited Liability Partnerships for them. Where an entity has its own statutory format under a specific law, that format continues to prevail.

What is the four-level classification for non-corporate entities?

Entities are graded by size to determine how much Accounting Standards disclosure they must make. Level I is turnover above ₹250 crore or borrowings above ₹50 crore (plus listed entities, banks, financial institutions and insurers regardless of size). Level II is turnover above ₹50 crore up to ₹250 crore, or borrowings above ₹10 crore up to ₹50 crore. Level III is turnover above ₹10 crore up to ₹50 crore, or borrowings above ₹2 crore up to ₹10 crore. Level IV is everything else. Level I complies in full; Levels II to IV are MSMEs and receive graded exemptions.

Is the new balance sheet format mandatory for partnership firms?

Yes, but check which year. Partnership firms are squarely within scope. Applicability is phased: accounting periods beginning on or after 1 April 2025 for firms with turnover above ₹5 crore, and on or after 1 April 2026 for all firms. A firm's size affects the volume of disclosure it must make, not whether the format applies — a Level IV partnership still presents the prescribed structure, with fewer notes behind it.

Does the guidance note apply to LLP financial statements?

Not this one. ICAI issued a separate Guidance Note on Financial Statements of Limited Liability Partnerships, because an LLP is a body corporate under the LLP Act while not being a company under the Companies Act — so neither Schedule III nor the non-corporate Guidance Note is the right home for it. The two Guidance Notes are closely aligned in structure and share the same phased applicability (1 April 2025 above ₹5 crore turnover, 1 April 2026 for all), but an LLP engagement should be worked against the LLP Guidance Note. This is separate from, and in addition to, the LLP's own filing obligations in Form 8.

What disclosures are required for non-corporate entities?

At minimum: significant accounting policies; a capital account schedule per partner or proprietor; Property, Plant and Equipment movement; trade receivables and payables ageing; borrowing terms, security and any default; contingent liabilities and commitments; inventory valuation basis; related-party transactions; employee benefits; events after the Balance Sheet date; and prior-year comparatives in the identical format. The depth of the related-party, segment and employee-benefit disclosures depends on the entity's level.

What to do before the next filing cycle

Re-map every client's Tally masters to the Guidance Note heads once, and reuse the mapping — this is the work that pays back across your whole roster rather than one file. Our companion guide on classifying Tally ledgers to the ICAI heads walks through the 28 default groups and the edge cases teams get wrong, and the common errors in partnership firm statements covers the capital-account mistakes that survive review most often.

Refresh your firm's standard template to the prescribed vertical format so juniors are not rebuilding it per client. Classify each client into the correct level so you disclose neither too little nor too much. Firms that adopt the format proactively consistently report that downstream work — tax audit, bank financing, partner settlements — becomes materially smoother, because the statements already speak the regulator's language instead of needing translation.

If you would rather not rebuild the template by hand, the Accountrix Financials module converts a TallyPrime or Excel trial balance into the prescribed Balance Sheet, Profit and Loss and notes, with the level-based disclosures applied and the reconciliation checks run before you sign. The first statement is free, with a full on-screen preview and no card required.